Q: One of my adult children is disabled and is receiving public benefits. What would happen if I died and my child inherited from me? I have heard that an inheritance to my child would result in my child being kicked off public benefits. Is there any way to guard against that situation?
A: It is first of all important to understand that Medicaid and other public government benefits are based upon the resources, assets and income of the disabled person for purposes of determining eligibility. If a recipient of such public benefits receives an inheritance, that inheritance could result in your loved one losing their public benefits because he or she no longer meets the resource limits.
There are a few options available in this situation. First, you can create a Will that disinherits your child. That option feels pretty awful to a lot of people, but fortunately there are other things you can do to provide for your child outside of an outright inheritance.
If your child was disabled prior to age 26, you could make gifts during your lifetime of up to $14,000 per year (as of 2017) into an ABLE Account, which is an account that can be used to pay for Qualified Disability Expenses (QDEs) your your child. When used properly, the ABLE Account will not result in your child losing public benefits. (See my previous blog entry for more detail on ABLE accounts). A QDE is an expense related to your child’s disability, and includes items such as housing, education, transportation, health and wellness, and more. The account balance cannot exceed $100,000 if your child receives Supplemental Security Income, and if not, the account balance cannot exceed $350,000.
Another option is to set up a Supplemental Needs Trust (SNT) for the benefit of your child. Like the ABLE Account, when set up and used properly, a SNT will not result in your child losing his or her public benefits. A SNT can either be set up in your Will to receive any inheritance for the benefit of your disabled child, or it can be set up and funded prior to your death. A SNT is intended to supplement government benefits rather than supplant those benefits. In other words, the funds in a SNT cannot be used to pay for the housing expenses of a disabled person if a government program is paying for housing. However, the SNT can be used to upgrade the beneficiary’s housing, for example, from a double room to a single room, or to purchase cable television, magazine subscriptions, or a cell phone, etc. for the benefit of your child. One word of caution with SNTs is that once the beneficiary is over age 64, the protective nature of the trust is no longer applicable if the beneficiary enters into a nursing facility with no expectation he or she will be discharged. What that means is that whatever is in the SNT will be counted as an asset of the beneficiary and could result in the beneficiary losing his or her public benefits.
It is also possible to set up both a SNT and an ABLE Account for the benefit of your child.
By: Letty Van Ert